argentina, brazil, castro, cato, chavez, chile, colombia, communism, economic freedom, economics, economy, fidel castro, frasier institute, gdp, GDP per capita, hugo chavez, jake huneycutt, latin america, milton friedman, myanmar, panama, politics, socialism, uruguay, venezuela
Hugo Chavez won re-election in Venezuela last night. This is terrible news for Venezuela’s economy. According to Canada’s Frasier Institute, Venezuela has become the least free economy in the entire world. This puts it below economic basket cases such as Myanmar, Zimbabwe, Angola, and the Republic of the Congo. Venezuela may also be one of the greatest examples of the economic concept called “the resource curse,” which refers to the paradox that nations with abundant natural resources tend to have significantly weaker economic growth and worse development outcomes than nations without natural resources.
With that said, it’s worthwhile to examine economic and wealth growth in Venezuela, compared to its closest neighbor, Colombia, over the past five decades. There’s no perfect measure to compare two nations, but GDP per capita, in my view, normally provides the best comparison. GDP per capita examines the size of each economy divided by its total population.
Thanks to the magic of Google, here are the results:
(click image to enlarge)
In 1960, Venezuela was the wealthiest nation in Latin America. Colombia was dirt poor at that time. Venezuela’s economy had seen major growth due to its great supply of oil and GDP per capita was around $5,440. Contrast that with Colombia, where GDP per capita was a meager $1,190.
Fifty two years later and Venezuela has barely grown at all. GDP per capita has only increased 4.2% in that entire 52 year span. What’s also interesting is how correlated Venezuela’s GDP per capita line is with the price of oil, showcasing how completely dependent Venezuela is on this one commodity. Outside of oil, Venezuela’s economy is a complete basket case, likely experiencing negative growth over the past five decades.
Contrast that with Colombia. Colombia is still relatively poor, but it’s been gaining rapidly, particularly over the past decade. Colombia’s overall per capita GDP growth over the entire timeframe is 184%.
The chart below compares the growth overall and on an annualized basis:
As you can see, Venezula’s annualized per capita GDP growth rate is virtually zero. Colombia’s 2.07% growth rate is not particularly outstanding, but looks very impressive compared to Venezuela’s zero growth rate.
Venezuela vs. Latin America
If you want to make things more dramatic, take a look at this chart analyzing many more Latin America economies alongside Venezuela. I’m not going to paste this one on the blog, as I believe it’s a bit easier to see on Google’s own site. However, here’s a chart that summarizes all the data.
There are seven other economies in the chart aside from Venezuela and every single one of them grew at a significantly faster rate. All seven were poorer than Venezuela in 1960. Five out of the seven are now wealthier. Only Colombia and Brazil still trail Venezuela in terms of GDP per capita, but both are growing at a much faster rate than Venezuela.
Chile comes out looking the most impressive of the bunch. It looks even better if you only look at it over the past few decades. From 1980 onwards, its GDP per capita growth rate is 3.26%.
Argentina is often considered the very model of Latin American dysfunction throughout much of the 20th Century. Yet, Argentina should provide some hope for Venezuela. From 1960 to 1990, Argentina looked remarkably similar to Venezuela, achieving a paltry per capita GDP growth rate of 0.2%. From 1990 onwards, after Argentina made major reforms, it has achieved a growth rate of 2.47%, a major improvement.
Don’t expect Venezuela to have that sort of turnaround in the next six years under Hugo Chavez, though. Indeed, the only real hope that GDP per capita will increase significantly during Chavez’s next term comes from rising oil prices. Without that, no gains will be made, and even with that, the real gains will likely be minimal.